My top investment trust buys for a starter portfolio
A good starter portfolio should give you diversified exposure across various markets. But if you're planning to start investing with only a small amount of start-up capital, it can be difficult to build a diversified portfolio of stocks from scratch.
With limited investment capital, the transaction costs of investing in a large number of stocks can really rack up, hurting your long-term returns. Instead, using investment trusts to access the market may be a better option. Investment trusts enable you to pool your money together with other investors, making them an easy and relatively inexpensive way to get invested in a diversified range of markets.
One example which seems like a perfect choice for novice investors seeking broad exposure across global equity markets is the Witan Investment Trust(LSE: WTAN).
The fund holds a well-diversified portfolio of well over 300 stocks, which spread outs its investment risk across a wide range of industries and different geographies. Additionally, no single investment currently accounts for more than 2% of its total assets, and as such, the fund's performance does not largely hinge on a small number of stocks.
Witan is positioned strongly towards UK and European equity markets, which represent 34% and 23% of its total assets, respectively. With equity markets in the UK and Europe trading at a relative discount to the rest of the world, this puts the fund in a strong position to benefit from a possible convergence in valuations. It could also mean that its portfolio would be less vulnerable when the long-awaited correction comes.
Witan's past performance compares favourably against its composite benchmark, which consists of the FTSE All-Share Index and other regional and international equity indexes. Over the past five years, the trust delivered a NAV total return of 75%, which enabled it to easily beat its benchmark performance of 58% over the same period.
What's more, the trust has an excellent dividend track record, having increased the dividend it pays to investors for 43 consecutive years. At the time of writing, shares in the trust yield 2%.
For something more adventurous, F&C Global Smaller Companies(LSE: FCS) may be worth a closer look. The investment trust seeks to deliver superior long-term capital growth by investing in faster growing small-cap companies.
Although smaller companies may be inherently more risky than larger companies, investors are often well rewarded for taking the added risks. Smaller companies have historically delivered stronger relative returns over the long term, particularly during bull markets.
Like the Witan Investment Trust, it too has a global investment remit and is geographically diversified. The fund is most exposed to North America, which accounts for 38% of its total assets. It has a further 27% invested in the UK, and 12% in the rest of Europe.
A look at the portfolio shows the trust is itself invested in other small-cap funds, and it does this to gain exposure to Japanese and Asian small-caps as its own dedicated investment team is primarily focused on companies in the UK, Europe and North America.
The long-term performance of the trust is solid, with a total NAV return of 82% over the past five years.
Do you want to retire early and give up the rat race to enjoy the rest of your life? Of course you do, and to help you accomplish this goal, the Motley Fool has put together this free report titled "The Foolish Guide To Financial Independence", which is packed full of wealth-creating tips as well as ideas for your money.
The report is entirely free and available for download today, so if you're interested in exiting the rat race and achieving financial independence, click here to download the report. What have you got to lose?
Jack Tang has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.